No prescription seems to alleviate the pains that Rite Aid (NYSE:RAD) investors are experiencing. Shares of the drugstore operator plunged 24% in July, continuing to tumble after its once pending acquisition on behalf of Walgreens Boots Alliance (NASDAQ:WBA) unraveled. It became a much smaller asset sale in late June, and even that transaction is no lock to close.

Rite Aid stock has now closed lower for five consecutive months, shedding more than half of its value along the way. The irony here is that Rite Aid shares are trading for a little more than a third of where they were before Walgreens proposed a buyout that was originally valued at $17.2 billion. Rite Aid's store-level performance has languished since it accepted the original Walgreens proposal nearly two years ago, that's true, but at some point the sell-off has to be overdone if you accept that Rite Aid will still be around in a few years. 

A Rite Aid ad about healthy living.

Image source: Rite Aid.

Rite field

It's been a rocky 22 months since Walgreens and Rite Aid announced that they would be hooking up, and lukewarm antitrust regulators refused to approve the deal even after Rite Aid agreed to take less money and hand over hundreds of its stores to a third retailer to ease anti-competitive fears. 

Rite Aid stock has been one of the biggest large-cap losers of 2017, plunging 73% through the first seven months of the year. One would think that opportunistic analysts would try to play up Rite Aid as a swinging single value play, but sentiment has only worsened as the stock craters. Ann Hynes at Mizuho became the latest to talk down the stock, downgrading the shares from Buy to Neutral two weeks ago. Her price target is now a sobering $2.95. 

There's a fair amount of skepticism about even the revised asset sale going through. Outside of the $325 million penalty that it stands to collect from Walgreens as a result of the nixed merger agreement, any kind of transaction faces a difficult regulatory challenge. The new deal calls for Rite Aid to hand over less than half of its stores in a $5.175 million deal, arming Walgreens with 2,186 of Rite Aid's 4,523 locations.

The summertime asset sale going through would provide Rite Aid with more than half of its current $9.4 billion in enterprise value, a noteworthy haul for a company saddled with $7.2 billion in debt. Rite Aid feels that it has enough in net operating loss carryforwards to limit the tax bite on the asset sale gain. With Rite Aid still holding on to 52% of its stores as well as its EnvisionRx pharmacy benefit manager, RediClinic, and Health Dialog subsidiaries -- and the option to score generic drugs from a Walgreens affiliate at cost for the next 10 years -- a leaner and more focused Rite Aid could be so much better than the zombie of a drugstore chain that it's been lately. The market obviously doesn't see it that way these days, but there's a sound valuation argument to be made that this unfortunate streak of sinking stock prices will end at five months. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.